IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0256764.html
   My bibliography  Save this article

Navigating optimal treaty-shopping routes using a multiplex network model

Author

Listed:
  • Sung Jae Park
  • Kyu-Min Lee
  • Jae-Suk Yang

Abstract

The international tax treaty system is a highly integrated and complex network. In this system, many multinational enterprises (MNEs) explore ways of reducing taxes by choosing optimal detour routes. Treaty abuse by these MNEs causes significant loss of tax revenues for many countries, but there is no systematic way of regulating their actions. However, it may be helpful to find a way of detecting the optimal routes by which MNEs avoid taxes and observe the effects of this behavior. In this paper, we investigate the international tax treaty network system of foreign investment channels based on real data and introduce a novel measure of tax-routing centrality and other centralities via network analysis. Our analysis of tax routing in a multiplex network reveals not only various tax-minimizing routes and their rates, but also new paths which cannot be found by navigating a single network layer. In addition, we identify strongly connected components of the multiplex tax treaty system with minimal tax shopping routes; more than 80 countries are included in this system. This means that there are far more pathways to be observed than can be detected on any given individual single layer. We provide a unified framework for analyzing the international tax treaty system and observing the effects of tax avoidance by MNEs.

Suggested Citation

  • Sung Jae Park & Kyu-Min Lee & Jae-Suk Yang, 2021. "Navigating optimal treaty-shopping routes using a multiplex network model," PLOS ONE, Public Library of Science, vol. 16(8), pages 1-16, August.
    • Handle: RePEc:plo:pone00:0256764
    DOI: 10.1371/journal.pone.0256764
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0256764
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0256764&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0256764?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David Bradbury, & Tibor Hanappi & Anne Moore, . "Estimating the fiscal effects of base erosion and profit shifting: data availability and analytical issues," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    2. Francis Weyzig, 2013. "Tax treaty shopping: structural determinants of Foreign Direct Investment routed through the Netherlands," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(6), pages 910-937, December.
    3. Marcel Gerard & Marie-France Gillard, 2004. "Taxation, Financial Intermodality and the Least Taxed Path for Circulating Income within a Multinational Enterprise," Annals of Economics and Statistics, GENES, issue 75-76, pages 89-107.
    4. repec:adr:anecst:y:2004:i:75-76:p:05 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Park, Sung Jae & Lee, Kyu-Min & Yang, Jae-Suk, 2023. "Calculating the country risk embedded in treaty-shopping networks," Technological Forecasting and Social Change, Elsevier, vol. 189(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maarten ‘t Riet & Arjan Lejour, 2018. "Optimal tax routing: network analysis of FDI diversion," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1321-1371, October.
    2. Maarten ‘t Riet & Arjan Lejour, 2018. "Optimal tax routing: network analysis of FDI diversion," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1321-1371, October.
    3. Sunghoon Hong, 2018. "Tax treaties and foreign direct investment: a network approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1277-1320, October.
    4. Laudage, Sabine, 2020. "Corporate tax revenue and foreign direct investment: Potential trade-offs and how to address them," IDOS Discussion Papers 17/2020, German Institute of Development and Sustainability (IDOS).
    5. Vincent Bouvatier & Gunther Capelle-Blancard & Anne-Laure Delatte, 2017. "Banks Defy Gravity in Tax Havens," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03101505, HAL.
    6. Pamela Pogliani & Goetz von Peter & Philip Wooldridge, 2022. "The outsize role of cross-border financial centres," BIS Quarterly Review, Bank for International Settlements, June.
    7. Arjan Lejour, 2014. "The Foreign Investment Effects of Tax Treaties," Working Papers 1403, Oxford University Centre for Business Taxation.
    8. Anken, F. & Beasley, J.E., 2012. "Corporate structure optimisation for multinational companies," Omega, Elsevier, vol. 40(2), pages 230-243, April.
    9. Duy Vu, 2018. "To Settle or to Fight to the End? Case-level Determinants of Early Settlement of Investor-State Disputes," GREDEG Working Papers 2018-36, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France, revised Feb 2020.
    10. Jan Pavel & Jana Tepperová, . "ATP Identification Using Balance of Payments Data: Case of the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 0.
    11. Arjan Lejour & Jan Möhlmann & Maarten van 't Riet & Thijs Benschop, 2019. "Dutch Shell Companies and International Tax Planning," CPB Discussion Paper 402, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Azamat B. Berberov & Nikolay S. Milogolov, 2018. "Assessment of the Scope of Tax Base Erosion in Russia," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 6, pages 47-58, December.
    13. Joana Garcia, 2022. "Multinationals and services imports from havens: when policies stand in the way of tax planning," Working Papers w202214, Banco de Portugal, Economics and Research Department.
    14. Delatte, Anne-Laure & Guillin, Amelie & Vicard, Vincent, 2022. "Grey zones in global finance: The distorted geography of cross-border investments," Journal of International Money and Finance, Elsevier, vol. 120(C).
    15. Park, Sung Jae & Lee, Kyu-Min & Yang, Jae-Suk, 2023. "Calculating the country risk embedded in treaty-shopping networks," Technological Forecasting and Social Change, Elsevier, vol. 189(C).
    16. Maarten van 't Riet & Arjan Lejour, 2014. "Ranking the Stars: Network Analysis of Bilateral Tax Treaties," CPB Discussion Paper 290, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Luo, Changyuan & Luo, Qin & Zeng, Shuai, 2022. "Bilateral tax agreement and FDI inflows: Evidence from Hong Kong investment in the Mainland China," China Economic Review, Elsevier, vol. 73(C).
    18. Sunghoon Hong, 2022. "Tax treaties and foreign equity holding companies of multinational corporations," Review of Managerial Science, Springer, vol. 16(2), pages 483-520, February.
    19. Deborah Schanz & Andreas Dinkel & Sara Keller, 2017. "Tax attractiveness and the location of German-controlled subsidiaries," Review of Managerial Science, Springer, vol. 11(1), pages 251-297, January.
    20. Ali-Yrkkö, Jyrki & Koski, Heli & Kässi, Otto & Pajarinen, Mika & Valkonen, Tarmo & Hokkanen, Marja & Hyvönen, Noora & Koivusalo, Elina & Laaksonen, Jarno & Laitinen, Juha & Nyström, Enni, 2020. "The Size of the Digital Economy in Finland and Its Impact on Taxation," ETLA Reports 106, The Research Institute of the Finnish Economy.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0256764. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.